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Side hustle alert! How I use stocks for passive income

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With utility bills rising and pay levels not keeping up with inflation, having a side hustle makes perfect sense. It helps take some of the pressure off my main job and allows me to use passive income in different ways. If I don’t need it for bills, I’ll reinvest it in stocks so I can earn more later. Here’s how.

Identify the right stocks to invest in

There is a misconception that all actions are alike. Different listed companies can have incredibly different characteristics. For example, You’re here is a growing electric vehicle manufacturer that uses retained earnings to reinject into the business to fuel growth. He is not interested in paying out profits to shareholders as dividends at this time.

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In contrast to this, Rio Tinto is a mature mining company that has achieved scale in the industry. It has a different approach and regularly pays a generous dividend to shareholders. It currently has a dividend yield of 9.93%. This means that if the dividend payments remain the same, I would generate just under £100 of passive income per year if I invested £1000.

To maximize my passive income potential, I want to invest in stocks that pay dividends. This way I can accumulate income. From there, I can decide what I want to do with the extra funds.

Sustainable Dividend Stocks for Passive Income

While I’m happy with dividend stocks, I want to differentiate myself more when trying to make my team as efficient as possible. If I have a fixed amount of start-up money to invest, I want to split it among multiple dividend-paying stocks. Just like other hustles I might consider, I don’t want to put all my eggs in one basket by picking just one dividend-paying stock.

To give myself the best chance of sustainable dividend income for years to come, I would choose one stock from each of the major sectors. These include technology, healthcare, finance, utilities and other industries. If something negative happens to a sector, it won’t have an undue impact on my overall passive income.

I can also check the history of dividend payments to put myself more at ease. For example, national grid and British American Tobacco have both experienced two consecutive decades of dividend growth!

Risks to watch out for

Any investment involves a degree of risk of which I should be aware. Dividend stocks are no exception. My invested capital fluctuates in value with the share price. This could mean that I receive more or less than what I originally invested when I sell the stock.

Also, dividends are not guaranteed payments. They are paid at the discretion of the management team. If the company is having a bad year, it may decide to reduce the dividend per share and instead use the cash in the operation. This would reduce the amount of passive income I would receive that year.

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